Insights and Takeaways from This Week’s Financial Trends:
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Investor sentiment is showing a shift from euphoria to doubt.
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Valuations are currently at the higher end of a new elevated range.
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Passive or index funds are dominating the market over active funds.
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The US market is significantly leading in global equities.
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The bar is set higher for the US market compared to global equities, presenting potential opportunities.
Overall, the data indicates a shift in sentiment from extreme bullishness and enthusiastic market flows to a growing sense of skepticism and concern. The era of Trumphoria is fading, and the market is adjusting to a new reality.
1. Fading Euphoria:
The sentiment in the market appears to be changing. The “Euphoriameter” indicator, which considers factors like forward P/E ratio, surveyed sentiment, and equity risk pricing, peaked in November last year. This peak, known as Trumphoria, reflected market expectations of continued growth similar to that seen after 2016. However, the current environment is becoming more volatile and challenging due to slower reforms, trade tensions, and high valuations.
Source: The Euphoriameter from Topdown Charts
2. Shifting Markets:
Recent surveys, such as the Investment Manager Index, show a notable shift towards risk aversion as investment managers reassess political and fiscal factors along with the global macroeconomic outlook.
Source: S&P Global Investment Manager Index
3. Changing Flows:
A significant change in market sentiment is evident from the flow of funds into US equities. The surge in Developed Market flows outside the US, particularly during 2014-2016, suggests a potential shift in focus towards global equities in the future.
Source: @ISABELNET_SA
4. Elevated Valuations:
While the US market is operating within a new range of higher P/E ratios, it currently sits at the upper limit of this range. Despite the acknowledgment of this new valuation reality, caution is warranted.
As the financial landscape evolves, it is crucial for investors to stay informed and adapt their strategies accordingly to navigate the changing market conditions.